A recent candlestick doji and glut of open SPY calls are on our radar for the days ahead

"One sector displaying clear leadership is technology, as measured by the Nasdaq Composite (COMP - 4,955.97). This index is up more than 4% in the first two months of the year and, on Wednesday, cleared 4,900. Barring a pullback back below 4,900, the next major round-number area is 5,000 ... From a technical perspective, the march to 5,000 is not taking on the 'bubble-like' parabolic move that it did 15 years ago ... The bottom line is that investors seem to be accumulating technology stocks at a much more measured pace, in contrast to the aggressive pace that preceded the bubble."
-- Monday Morning Outlook, February 23, 2015

The Nasdaq Composite (COMP - 4,963.53) continued to grind higher last week, but the celebration remains on hold, as the high last week was 11 points shy of the 5,000 millennium mark. As most of you know, this level has not been touched since March 2000 (although, for some of us, it may seem like only yesterday).

So, after closing out February on Friday, we enter the month of March. Perhaps it is fitting for this index to revisit the 5K millennium mark for the first time in 15 years in the month of March once again, but -- hopefully, for bulls -- with different results. In March 2000, the 5,000 area essentially marked the beginning of the end. As we discussed last week, we aren't seeing near the speculative froth that was evident ahead of the bubble's burst 15 years ago. While 5,000 could act as resistance in the near term, it is less likely that 5,000 marks a major top, as it did in 2000.

Moreover, on Wednesday, the COMP ended a 10-day winning streak. Historically, after a long winning streak like this ends, the COMP quickly picks up where it left off. This suggests a higher-than-normal probability that 5,000 will not only be touched this month, but we could see the index advance well above, if historical tendencies play out. For more on this, review "Indicator of the Week: Nasdaq Hot Streaks," by our Senior Quantitative Analyst Rocky White.

30-Minute COMP Chart since Feb. 9, 2015

"As is evident by the latest Commitment of Traders (CoT) report, it appears large speculators (typically, hedge funds) continue to cover their bets on declining volatility, as they also continue to reduce short positions on CBOE Volatility Index (VIX - 14.30) futures. The short covering has created a net long position among VIX futures players, and this long position has grown, per the latest CoT report ... It is possible that the late news out of Europe generates a change in the views among this group, and shorting of VIX futures takes hold again."
-- Monday Morning Outlook, February 23, 2015

With round numbers cleared on many indexes, the Fed indicating a rate hike is not imminent, and a little uncertainty related to Greece lifted last week, we are seeing indications that some market participants have become more constructive on the market -- specifically, option speculators and hedge funds.

The good news for bulls is that these participants were in caution mode previously, so they could be in the early stages of increasing equity exposure, which would be supportive of the market during the coming weeks.

For example, in the Commitment of Traders (CoT) report -- which comes out weekly, with the latest data being reported as of Feb. 24 -- there is evidence that large speculators (typically, hedge funds) are again shorting CBOE Volatility Index (VIX - 13.34) futures. In other words, they are again betting on lower volatility, although the number of short positions is relatively small. If shorting of VIX futures continues, it would be a coincident tailwind for the S&P 500 Index (SPX - 2,104.50).

As this group shorts VIX futures, call buying on VIX futures has increased -- perhaps as hedges to those short VIX futures positions, or to long equity positions being initiated. But while VIX call volume has increased relative to January, when the market struggled, it still remains lackluster overall. This relatively tepid VIX call volume might indicate that only a few hedge funds are becoming constructive on stocks. For bulls, the prospect that more of these managers will increase their equity exposure in the weeks ahead is encouraging.

CoT VIX Futures Positions: Large Speculators Back to Net Short

Also, we are seeing an increasing number of bought-to-open put positions being initiated, relative to calls, on key equity exchange-traded funds (ETFs) -- such as the SPDR S&P 500 ETF Trust (SPY), iShares Russell 2000 ETF (IWM), and PowerShares QQQ Trust (QQQ). To the extent that some of this put activity is related to hedging as stocks are accumulated by hedge funds, it would further suggest that these market participants are in the beginning stages of accumulating stocks once again, which could prove supportive in the weeks ahead.

More Monday Morning Outlook Articles

If you tend to view the glass as "half full" instead of "half empty," you should be encouraged by last week's holiday-shortened, expiration-week price action. The S&P 500 Index (SPX - 2,110.30), after breaking out above resistance around 2,060 earlier this month, took a breather around the round 2,100 level -- as we suggested in last week's report could occur, especially with other key benchmarks trading around respective round numbers, too. The optimist would note that an immediate sell-off did not occur, as the index went sideways, with Friday's lows of the week occurring at the uptrending 10-day moving average (currently located at 2,083.26).

For the first time in 2015, the S&P 500 Index (SPX - 2,096.99) experienced two consecutive closes above 2,058.90, its 2014 close. As we have pointed out in past discussions, this level has been worth keeping an eye on -- up until last week, a close at or just above this year-to-date (YTD) breakeven level was immediately met with selling. In fact, notching that second consecutive daily close in the green for 2015 wasn't an easy task for the SPX, as an intraday pullback from its highs was supported right at this YTD breakeven.

The technical scenario that we presented in our Feb. 2 report played out last week with respect to the S&P 500 Index (SPX - 2,055.47) breaking below the 2,000 level, setting up an intraday decline to the lowest levels of 2015. However, longer-term support came into play in the 1,985 region -- around the index's 10-month moving average -- from which a furious rally began, proving once again the significance of this trendline.